Yellen, in her remarks yesterday, Wednesday June 18, was
sellin’ “nothing new.” Ms. Yellen reiterated that the central bank
expects to keep interest rates at these levels for a considerable time so as to
support the economy. This time, however, she did not make the mistake of
providing a specific time frame, so the mention of 2015 or 2016 declares, in my
opinion, that they are unsure of when this economy will be strong enough to
withstand a rate rise.
On the other hand, as we have mentioned before, the Fed will
have a balance sheet, at the end of the tapering, of about $4.75
trillion. If the Fed does not deleverage, then these funds will surely be
utilized to lower the US borrowing cost by lowering long-term rates. In
addition, this should continue to help bolster or aid the housing market.
The U.S.’s 10-year bond yield of 2.58% is 22% higher than that of
Slovakia’s 10-year bond and 29% higher than France’s 10-year rate. From a
relative value point of view, the US appears very attractive, and with the ECB
keeping Europe’s yields low, it is difficult to fathom a spike in US rates at
this time. Once again, Ms. Yellen is selling “nothing new”—except continued
low rates.
